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Prebisch-Singer Hypothesis

The Prebisch-Singer hypothesis is an economic theory that suggests that the prices of primary goods (such as raw materials and agricultural products) tend to decline relative to the prices of manufactured goods over time. This theory was developed by Raul Prebisch and Hans Singer in the 1950s and 1960s, and it has been influential in shaping policy debates about trade and development. According to the Prebisch-Singer hypothesis, the relative decline in the prices of primary goods has negative consequences for developing countries, which tend to be major exporters of primary goods and therefore rely on them for a significant portion of their foreign exchange earnings. As a result, the Prebisch-Singer hypothesis has been used to support policies such as import substitution (which promotes domestic production of goods that are normally imported) and export promotion (which encourages the export of goods to increase foreign exchange earnings).

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